Dealing With Unregulated Spain-Based Independent Financial Advisors

The collapse of Continental Wealth Management (CWN), an Alicante-based advisory firm, has left possibly hundreds of investors worried. CWM was not regulated to provide investment advice in Spain and was loosely regulated to provide insurance advice through German-based Trafalgar international, (a firm that also does not appear to be registered in Spain).

Unfortunately, it is a sad fact that most of the IFAs currently operating with the expat market in Spain are not regulated.

Equally, some of insurance or pension providers have never been regulated to operate in Spain (including Old Mutual Isle of Man, Premier Group Isle of Man, and Generali Worldwide Insurance Guernsey, thus falling foul of Spanish laws that declare all such policies in violation of national laws and consequently, null and void.

Very often, investments are carried out via ‘life-insurance/assurance companies’ that provide whole-of-life or unit-linked policies, which are generally linked to an investment portfolio.

Whether offered in Spain legitimately or not, life insurance policies linked to investments are being outlawed by the Spanish Supreme Court because it does not consider them life insurance policies. The reason for this is that the calculation of the premium and payout lacks ‘actuarial’ methodology, and so there is no provision for transferring risk from insured to insurer, making it irrelevant for the insurer whether the insured party lives over a certain date, or not.

The Court’s ruling on the validity of life insurance policies will order issuing firms to reimburse premiums in full (minus any surrenders made), plus annual legal interest and without deducting fees or commissions.

Following the ruling, clarification has finally been given on the practice of misselling financial or insurance products by unregulated advisors, confirming that such products will be made invalid. Furthermore, in these cases going forward, advisors will be responsible for reimbursing any financial loss suffered as a result of clients being missold life insurance and pensions.

By simply continuing to practice in Spain without regulation, Independent IFAs, insurance and pension providers will now be regarded as violating mandatory Spanish laws.

EU Continues Its Clampdown on Unregulated Financial Advisors In Spain

Since 2012, the EU has been investigating the complaints procedure against unregulated financial advisers exploiting expats in southern Spain, setting up an ombudsman to help expat victims reclaim against unregistered financial firms.

Action was taken after more than 1,000 victims sent a dossier of information to Brussels by an expat action group formed in the Costa del Sol. At that time, it was claimed that more than €120m was lost to unregulated investment among the British expat community in Spain.

At present, there are still no effective mechanism in place for victims to make a complaint against product providers who work with unregistered IFAs. For this reason, people wishing to make a claim against an unregulated provider or adviser are recommended to consult a solicitor specialising in Spanish law, even if the firm they are claiming against are of British origin.